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The Trademark Licensing Protection Act of 2018 Removing Impediments to the Franchisee – Franchisor Relationship

Posted by Res Nova Law | Jan 15, 2019 | 0 Comments

When you go to a Sonic in Portland, you have a certain expectation that the tater tots and frozen drinks are going to taste the same as they do in Atlanta. And you expect the Sonic employees' uniforms to be the same in Dallas as they are in Orlando. These expectations for Sonic and all Sonic franchises can be traced back to Section 5 of the 1946 Lanham Act. Titled Licensing of Marks for Use by Related Companies, this section requires franchisors to monitor and enforce the use of the trademarks that they have licensed to related companies or franchisees or risk losing their rights in those marks. This requirement ensures the value of brand owners' trademarks and overall company valuation, which is dependent on the marks' goodwill, is not diminished.

 This mandatory policing requirement has a crippling side effect in labor and employment lawsuits. The required control placed upon the franchisors by the Lanham Act causes them to be viewed by law as joint employers with the franchisees in lawsuits, opening the franchisors to increased liability. In a 2015 case involving Browning-Ferris Industries of California, the National Labor Relations Board found that the required control exerted by Browning-Ferris over another company's use of its trademarks was enough control to establish joint employer status. 

 Franchisors, under this ruling, would never be able to escape the status as a joint employer with their franchisees. This ruling destroys the independence of franchisees and discourages brand owners from licensing their brands. 

 Luckily, in August of 2018, Congressmen Steve Chabot and Henry Cuellar co-sponsored and introduced a bipartisan billtitled the “Trademark Licensing Protection Act of 2018.” The bill aims to clarify and remedy the franchisors' liability when licensing their brands to franchisees and to restore independence to the franchisee. The bill, which is slightly more than two pages long, clearly states that the licensing of a mark and the control exercised to preserve the “goodwill, reputation, uniformity, or expectation of the public” of the mark cannot be used to established joint employer status. 

 If passed, this bill will be added as an amendment to Section 5 of the 1946 Lanham Act and grant a sense of security to brand owners who want to license their brand to related companies. The bill is currently before the Subcommittee on Courts, Intellectual Property, and the Internet. Continue to check back to our blog to see if the bill passes. 

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